Classification of Government Expenditure in Nepal

Government expenditure is the end and purpose of the collection of state revenue. The modern governments not only perform such primary functions as the civil administration as well as the defence of the country, but also take considerable interest in promoting the economic development of their respective countries. The government expenditure has increased in recent years due to the development activities of the government.

Every government presents budget for the forth-coming fiscal year by stating the expenditure and expected revenue. Generally, a budget is classified into two headings such as current expenditures and capital expenditures, which include different headings like constitutional bodies, general administration, defence, social services, economic services etc. These two classifications are explained below:

Nepal Government Expenditure (Fiscal Year 2006/07)

Heading

Recurrent Expenditure (Rs. in Million)

Heading

Capital Expenditure (Rs. in Million)

1. Constitutional Bodies

876.1

1. Constitutional Bodies

45.3

2. General Administration

11079.0

2. General Administration

4512.0

3. Revenue Administration

1001.2

3. Revenue Administration

79.3

4. Economic Administration and Planning

663.3

4. Economic Administration and Planning

26.2

5. Judicial Administration

580.1

5. Judicial Administration

240.6

6. Foreign Services

846.8

6. Foreign Services

114.7

7. Defence

10128.9

7. Defence

1000.8

8. Social Services

29497.6

8. Social Services

15529.3

9. Economic Services

8384.8

9. Economic Services

17938.6

10. Interest Payments

6164.0

10. Loans and investment

20.0

11. Miscellaneous

8900.5

11. Miscellaneous

223.1

Total

77122.3

Total

39729.9

Source: Economic Survey, 2007/08

The government expenditure has been increasing continuously since the planning process in Nepal. In the fiscal year 2005/06, total government expenditure increased by 8.12% as compared to an increase of 14.7% in the previous fiscal year. According to the government expenditure classification, the current expenditure increased by 8.64% in fiscal year 2006/06. Similarly, the capital expenditure increased by 8.28% in the fiscal year 2005/06. The principal repayments of debt increased by 5.4% in that fiscal year.

In the fiscal year 2005/06, the total government expenditure was Rs. 110.8892 billion. Of this, 65.2% came from revenue mobilization, 12.5% from foreign grants, 7.4% from foreign debt and 10.7% from domestic debt. The increasing expenditure trend continued in FY 2006/07 too. The total expenditure increased by 20.5% in FY 2006/07 compared to the growth of 8.1% in FY 2005/06. As per the components of total expenditure, recurrent expenditure increased by 15.1% in FY 2006/07 compared to the growth of 8.6% in the previous year. Capital expenditure increased by 34.2 percent in FY 2006/07 over an increment of 8.3% in FY 2004/05. Principal repayment increased by 17.4% in FY 2006/07 compared to the growth of 5.4% in the previous year.

Of the total expenditure amounting to Rs. 110.88 billion in FY 2005/06, the revenue mobilization financed 65.2%, foreign grants 12.5%, foreign loan 7.4% and domestic borrowings 10.7%. Sources of financing the total expenditure of Rs. 133.60 billion in FY 2006/07 included revenue mobilization, 65.7%, foreign grants 11.8%, foreign loan 7.5%, domestic borrowings 13.4% and cash balance 1.6%. As a result of increase in the domestic borrowing by 51.2% in FY 2006/07 compared to FY 2005/06, change in cash balance in FY 2006/07 was limited to a deficit of Rs. 2.15 billion.

Recurrent Expenditure

In FY 2006/07 compared to in FY 2005/06, the recurrent expenditure increased by 15.1% to Rs. 77.12 billion. The total recurrent expenditure in FY 2006/07 stood at Rs. 67.01 billion in FY 2005/06. On the components of recurrent expenditure, the share of expenditure of constitutional bodies remained at 1.3%, general administration at 14.4%, revenue and fiscal administration at 1.3%, fiscal administration and planning at 0.9%, judiciary administration at 0.8% and foreign services at 1.1%. Likewise, the share of defence expenditure remained at 13.1%, expenditure on social services at 38.2%, economic services at 10.9%, interest payments at 8%, and miscellaneous expenditure at 10%.

In FY 2006/07, major chunk of recurrent expenditure (Rs. 29.5 billion) was spent on education, health, drinking water, local development and other social services. Likewise, other major expenditure heads of the recurrent expenditure were general administration Rs. 11.07 billion, defence Rs. 11.13 billion and economic services Rs. 8.38 billion. The expenditure on interest payments of principal remained at Rs. 6.16 billion.

Capital Expenditure

Capital expenditure in FY 2006/07 increased by 34.2% to Rs. 39.73 billion. IN the FY 2005/06, the total capital expenditure stood at Rs. 29.61 billion. Among the components of capital expenditure, economic services expenditure remained at Rs. 17.94 billion, social services at Rs. 15.53 billion, and defence at Rs. 1.08 billion. Likewise, the capital expenditure on general administration remained at Rs. 4.51 billion, judiciary administration at Rs. 240.6 million and miscellaneous at Rs. 223.1 million. The share of economic services in capital expenditure remained at 45.1%, that of social services 39.1%, defence 2.5%, general administration 11.4%, judiciary administration and miscellaneous 0.6% each. When compared to the capital expenditure of FY 2005/06, capital expenditure for social services increased by 53%, that for economic services by 21.2%, defence expenditure by 37.7% and general administration by 281.8%. Similarly, the expenditure on revenue and fiscal administration increased by 51.6%, judiciary administration by 37.1%, and fiscal administration and planning by 29.1%.